The Effect of 'Check the Box' on U.S. Multinational Tax Rates

33 Pages Posted: 15 Jul 2015

See all articles by Amy E. Dunbar

Amy E. Dunbar

University of Connecticut - Department of Accounting

Andrew Duxbury

James Madison University

Date Written: June 28, 2015

Abstract

This paper examines changes in current foreign effective tax rates for U.S. versus foreign multinational corporations (MNCs) after a U.S. tax change known as check-the-box (CTB) became effective. We find that U.S. MNCs reported current foreign effective tax rates that declined approximately 9 percentage points more than foreign MNCs in the post-CTB period, suggesting that CTB allowed these U.S. firms to engage in more effective foreign tax planning. Because the U.S. taxes foreign income up to the U.S. tax rate when repatriated, we examine whether these foreign tax savings were maintained, or whether they were offset by additional U.S. tax. We find no significant change in U.S. tax rates on foreign income in the post-CTB period suggesting that more foreign earnings were retained offshore after CTB became effective. Thus, CTB likely played a role in maintaining the competitive balance between U.S. and foreign MNCs worldwide effective tax rates as found in prior studies. Finally, given the significant change in foreign effective tax rates, we examine whether investors reacted to CTB announcements, but we do not find a stock price response.

Keywords: Check the Box, International Tax, Tax Avoidance, Repatriation Policy

Suggested Citation

Dunbar, Amy E. and Duxbury, Andrew, The Effect of 'Check the Box' on U.S. Multinational Tax Rates (June 28, 2015). Available at SSRN: https://ssrn.com/abstract=2630738 or http://dx.doi.org/10.2139/ssrn.2630738

Amy E. Dunbar

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269-2041
United States
860-486-5138 (Phone)
860-486-4838 (Fax)

Andrew Duxbury (Contact Author)

James Madison University ( email )

Harrisonburg, VA 22807
United States

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